A contractor defaults on payments to a mechanical subcontractor. The subcontractor is protected and guaranteed payment by a

A payment bond is a type of surety bond issued by an insurance company or bank to guarantee that a contractor will pay all of its subcontractors, laborers, and material suppliers for the work performed. If the general contractor defaults on its payment obligations, the subcontractor can make a claim directly against the bond. The surety company is then obligated to pay the subcontractor, providing a direct financial guarantee and protection against the contractor's failure to pay. This instrument is specifically designed for this purpose.

B. mechanic’s lien: This is a legal claim against the property itself, not a guarantee of payment. It secures the debt but requires legal action to enforce, and payment is not guaranteed.

C. performance bond: This protects the project owner by guaranteeing that the contractor will complete the project according to the contract terms, not that subcontractors will be paid.

D. builder’s risk insurance: This is property insurance that covers physical damage or loss to the building and materials during construction; it does not cover financial defaults or payment disputes.

1. American Institute of Architects. (2010). AIA Document A312™–2010

Payment Bond. In this standard contract document

Section 1 explicitly states that the Contractor and Surety are bound to the Owner for the benefit of "Claimants" (defined in Section 16 as subcontractors and suppliers) for the payment of labor and materials.

2. Sears

S. K.

Sears

G. A.

& Clough

R. H. (2015). Construction Contracting: A Practical Guide to Company Management (8th ed.). Wiley. Chapter 6

"Bonds

" distinguishes between performance bonds

which protect the owner against contractor default on the work

and payment bonds

which "guarantee payment for labor and materials used or supplied in the performance of the contract" (p. 127).

3. Hinze

J. W. (2012). Construction Contracts (3rd ed.). McGraw-Hill. Chapter 11

"Bonds and Insurance

" explains that a payment bond's purpose is to "provide assurance that the bills of subcontractors

suppliers

and workers on the project will be paid by the general contractor" (p. 268). This protects both the owner from liens and the subcontractors from nonpayment.